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Blow for chancellor as 4G auction comes up pounds 1.2bn short of Treasury expectations: Sale could herald roll-out of superfast internet Main mobile networks each get share of airwaves
[February 20, 2013]

Blow for chancellor as 4G auction comes up pounds 1.2bn short of Treasury expectations: Sale could herald roll-out of superfast internet Main mobile networks each get share of airwaves

(Guardian (UK) Via Acquire Media NewsEdge) The 4G auction has ended in a humiliation for George Osborne, pulling in pounds 1.2bn less than expected for the Treasury. But it is a boon for smartphone users, leaving mobile networks with the spare change to finance a rapid roll-out of superfast wireless internet.

The biggest ever sale of British airwaves raised pounds 2.34bn for the public purse, less than the pounds 3.5bn the chancellor was counting on to keep government borrowing in check, and below the pounds 4bn analysts had estimated based on prices fetched in recent European 4G auctions.

UK mobile networks will pay just 10% of the pounds 22.5bn handed over in the 3G spectrum 13 years ago. Caught up in the 2000 dotcom boom, the industry spent so much on licences that year that it was years before they could afford to build their networks across the country. Some, including Vodafone, are still writing off the cost.

"UK mobile operators paid much less than anticipated and every penny they saved on the auction will be gained by UK consumers in terms of better services," said Dario Talmesio, analyst at Informa.

While 3G remained largely unused until Apple released the first iPhone in 2007, there is now pent-up demand for internet access on smartphones, and 4G promises speeds equal to the average home broadband service.

Osborne's autumn statement, which forecast the deficit for this financial year, controversially included receipts for the yet to be held spectrum sale, allowing him to wrongfoot the opposition and claim that government borrowing would not rise compared with last year.

Rachel Reeves, shadow chief secretary to the Treasury, said the debacle showed "how foolish and short-termist" the chancellor had been to bank the cash before it had been raised, adding: "His trickery has now badly backfired." The Treasury said raising pounds 1.2bn less than expected was not material when compared with the pounds 1.3tn of spending and tax receipts flowing through the Treasury this year.

The Treasury's loss will be the consumer's gain. The telecoms watchdog Ofcom, which organised the auction, believes 4G could bring a pounds 20bn boost to the economy over the next decade, as new shopping, entertainment and service businesses establish themselves on the small screen. One operator, O2, will be required to build out coverage to 98% of the population indoors by 2017.

In a surprise result that could spur competition between the UK's four mobile phone networks, each has come away with a slice of the most valuable airwaves in the lower frequency bands needed to provide coverage beyond towns and cities.

Out of seven bidders, the fifth and final winner was BT, which will use its spectrum for 4G connections in fixed locations such as homes and public Wi-Fi hotspots, and possibly to extend rural broadband.

"True success will be delivery of a 4G network in the countryside sooner rather than later," the Countryside Alliance said.

Bidding on the lower frequency spectrum was less fierce than expected, with the largest operator, Everything Everywhere, settling for the smallest possible slice, having launched the UK's first 4G service in November using spectrum it already owned.

After five years of legal wrangling between operators and regulators, the UK was one of the last European nations to sell 4G airwaves. Networks have learned that 4G is not a licence to print money.

"The lesson from Europe is although 4G comes to market as a distinct service with premium prices attached to it, when competition arrives that premium erodes quite quickly," said IDC analyst John Delaney.

Ofcom was selling spectrum in two bands: the lower frequency 800 megahertz, and the higher frequency 2600 megahertz. Lower frequency signals travel around 10 times further, so require fewer masts. They are better for rural coverage and at penetrating inside buildings - so fetching higher prices at auction. But 2600 is useful for cities, where smartphone usage is heaviest.

EE, Vodafone and O2 had been expected to carve up all the 800 spectrum between them. Vodafone and O2 each bought as much as they were allowed, but EE came away with the minimum, leaving 3 to secure a slice. Vodafone spent the most, shelling out pounds 791m for a range of bands.

Leader comment, page 34 Captions: Everything Everywhere launched the UK's first 4G network in November with a light show at Battersea power station in London Photograph: Tom Oldham/Rex (c) 2013 Guardian Newspapers Limited.

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